Whether GST is applicable on Hostel charges collected from students / working professional

Food, shelter and cloth are the three basic needs of human life.

For shelter (or residence), a number of options are available to us:

♦ Flats / Building

♦ Hotel

♦ Hostel

♦ Transit flat / guest house maintained by employers for official and personal purpose

♦ Accommodation provided by employer

♦ Dharmshala (generally maintained at religious places)

♦ House Boat (common in Kashmir and southern states of India)

♦ Official / commercial places like Building, godown, warehouse etc

Again a person may stay at a place for two purposes:

• Personal residence
• Commercial purpose (i.e business purpose)

In this article we will discuss about GST applicability in case of Hostels.

Hostels can be of two types:

(1) Hostels maintained by educational institutions (like many school and colleges provides Hostel facility / boarding school facility either compulsory or optional basis)

(2) Private Hostels (Provided by individual operators to students and working professionals)

1) GST on Hostel facility  maintained by educations institution :

As per entry No 66 of Notification No 12/2017 Central tax (Rate) dated 28.06.2017 “services provided by an educational institution to its students, members and staff” will be exempt from GST.

In the above entry following two points are important:

(1) the services are provided by Educational Institution

(2) Such services are provided to its students, members and staff

Educational institution has been defined as under:

“Educational institution” means an institution providing services by way of,-

(1) pre-school education and education up to higher secondary school or equivalent;

(2) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(3) education as part of an approved vocational education course

On the combined reading of above it can be concluded that Hostel facility / Hostel services/ Boarding school services  provided by an educational institution is well covered within the meaning of “services provided by an educational institution to its students, members and staff” and hence will not be liable to GST.

It may be noted such hostel facility may be provided along with food. If food is also provided then there can be two kind of situation:

(a) Charges of food is directly collected by such educational institution or

(b) Charges of food is directly collected by some third party vendor appointed by such educational institution.

If charges for food is directly collected by such educational institution then this will be a case of composite supply in which predominant supply is of education and hence no GST will be applicable on the same. Beside it the same will also be covered under the meaning of services provided by an educational institution to its students, members and staff” . Hence no GST will be applicable in this case. (It may be noted that in this case if such Educational institution takes services of catering from any third party then that third party will not charge GST to such educational institution provided such educational institution is providing services by way of pre-school education and education upto higher secondary or equivalent)

If charges for food is directly collected by some third party from students (i.e not through educational institution) then it is an independent transaction and will not be exempt from GST.

If a part of the campus or hostel of such educational institution is given on rent for some other occasion (like marriage, corporate meetings etc) then the same will be liable to GST (since these services are not provided by educational institution to its students, members and staff).

We can understand the above with the help of following example.

Example 1)

An educational institution provides hostel facility to its students and charges following amount from students:

Particulars	Amount Rs
Tuition fees	5,000.00
Hostel stay Fees	1,500.00
	6,500.00

Whether GST will be applicable on above charges of Rs 6,500.

Ans:

No GST is applicable on whole charges of Rs 6,500 as the same is falling within entry No 66 of Notification No 12/2017 Central tax (Rate) dated 28.06.2017 “services provided by an educational institution to its students, members and staff”

Example 2)

An educational institution provides hostel facility to its students and charges following amount from students:

Particulars	Amount Rs
Tuition fees	5,000.00
Hostel Stay Fees	1,500.00
Canteen charges	1,000.00
	7,500.00

For providing canteen facility, educational institution takes catering services from outside vendor.

(a) Whether GST will be applicable on above charges of Rs 7,500.

(b) Whether that outside vendor is supposed to charge GST to such educational institution

Ans:

a) No GST is applicable on whole charges of Rs 7500 collected by educational institution as the same is falling within entry No 66 of Notification No 12/2017 Central tax (Rate) dated 28.06.2017 “services provided by an educational institution to its students, members and staff”

b) If educational institution is providing education upto higher secondary or equivalent then such outside vendor will not charge GST to this educational institution. However if educational institution is providing education beyond higher secondary or equivalent (i.e colleges, management institute etc) then such outside vendor will charge GST to this educational institution at applicable rate (as of now 5%).

(It may be noted that in above case if canteen services are provided by any third party vendor directly to students then it will not be exempt from GST).

Example 3)

A CA coaching institute / medical/ engineering  preparation institute provides hostel facility to its students and charges following amount from students:

Particulars	Amount Rs
Tuition fees	5,000.00
Hostel stay Fees	1,500.00
	6,500.00

Whether GST will be applicable on above charges of Rs 6,500.

Ans:

A CA coaching institute / medical / engineering  preparation institute does not fall within the meaning of educational institution since it does not lead to issue any qualification certificate.

Hence the above institute will not be eligible for exemption under Notification No 12/2017 dated 28.06.2017

If the above charge of Rs 6,500 is treated as composite supply (i.e naturally bundled) then GST will be applicable on the whole Rs 6500 at the rate of tax applicable on tution charges being primary supply.

However if the above charges of Rs 6,500 is not treated as composite supply (i.e tution services and hostel services are independent of each other) then GST will be applicable on tution fees of Rs 5,000 and GST on hostel charges of Rs 1,500 is explained in next para.

2) GST on Hostels maintained by private players / parties:

All the school and colleges do not provide hostel facilities. So students from distant places use to take hostel services from private parties / players.

Beside it hostel facilities are also required by working professional / salaried persons who are posted far away from their home town or places of usual residence.

As per Notification No 12/2017 dated 28.06.2017, the Services by way of renting of residential dwelling for use as residence is exempt from tax.

So we can conclude that if a property is given on rent for residential dwelling then GST will not be applicable and if the property is given for commercial purpose then GST will be applicable.

Now a question arises whether hostels are provided for residential dwelling or commercial purpose in order to decide applicability of GST on Hostel charges.

The following are the arguments in favour of levying GST on hostel charges:

1. Hostels are mainly maintained for commercial benefit (i.e for earning income / profit). So it is at par with Hotels and hence GST is applicable on Hostel charges.

2. In most of the cases the hostel operator is not necessarily the owner of the residential property. They use to take the property on hire from one of more landlords and then give it on rent to students / working professional. So combining the above two aspects it is clear that hostels are maintained for commercial purpose.

3. In order to run hostel the license from Shop and establishment Act is required. Shops and establishment license are required for commercial establishment. Hence hostels falls under commercial establishment and hence GST should be applicable on hostel charges.

In Education guide issued by CBIC which provides that in normal trade parlance residential dwelling means any residential accommodation and is different from hotel, motel, inn, guest house etc. which is meant for temporary stay. Since hostel is very much like hotel, guest house etc and is meant for temporary stay, so GST will be applicable on hostel charges.

The following are the arguments against levying GST on hostel charges:

1. The hostel is being given to students or working professionals for residential dwelling (not for carrying out commercial activity) hence it is covered under the Services by way of renting of residential dwelling for use as residence and hence should be exempt from GST.

2. Though the hostel operator may not be owner of building used as Hostel, however the exemption notification nowhere talks about the ownership of building/ flat. It only talks about residential dwelling for use of residence. Hence GST exemption should be allowed for hostel.

3. In the judgement of Hon’ble Supreme Court in Kishore Chandra Singh v. Babu Ganesh Prasad Bhagat AIR 1954 SC 316 wherein, it was held that expression residence only connotes that a person eats, drinks and sleeps at that place and not necessarily that the person should own it. In a hostel the students / working professional uses it basically for eating, drinking and sleeping. Hence hostel is a part of residence.

4. Whether the hostel is having license from shop and establishment Act is irrelevant to determine exemption under Notification No 12/2017 dated 28.06.2017, since the exemption uses the phrase the Services by way of renting of residential dwelling for use as residence and hence should be exempt from tax

All the aforesaid ground were considered by Karanataka High Court in the case of Taghar Vasudeva Ambrish Vs Appellate Authority For Advance Ruling Karnataka, decided  on 07.02.2022 and it was finally decided that Hostel are primarily given on rent for residential dwelling and is not at par with Hotel since hostels are not given for commercial activities and is primarily given to students and working professionals for residential dwelling.

Based on above we can summarize the above as below:

1. Hostels maintained by educational institutions – Not liable to collect GST on hostel charges.

2. Private Hostels (Provided by individual operators to students and working professional)- Not liable to collect GST on hostel charges.

However if the above hostel is given for a purpose other than residential dwelling, then GST will be applicable on the same.